Trading Earnings with Options: A Volatility Based Strategy

As traders, we know that many of the market’s most pronounced inefficiencies are discovered in areas and events of high uncertainty. A prime example of this are company earnings announcements - that is, each quarter, publicly traded companies are legally required to disclose their financial reports. On the day of and also leading up to the announcement, stocks experience higher-than-usual activity and volatility. As one would expect, if a company releases poor results, the stock will likely decline and vice versa. Because there exists so much uncertainty on earnings release days, you can expect a stock price to undergo massive swings. Trading days like these can blow up your account if you don’t know what you’re doing, but can also make you a killing if you have the write protocols set in place. In this article, you’re going to learn a profitable approach to trading options around company earnings announcements, one that I consistently use each earnings season.